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The Economics of Carbon Dioxide Removal: A Governance Perspective

Authors
/persons/resource/Ottmar.Edenhofer

Edenhofer,  Ottmar
Potsdam Institute for Climate Impact Research;

/persons/resource/franks

Franks,  R. Maximilian
Potsdam Institute for Climate Impact Research;

Gruner,  Friedemann
External Organizations;

Kalkuhl,  Matthias
External Organizations;

/persons/resource/Kai.Lessmann

Lessmann,  Kai
Potsdam Institute for Climate Impact Research;

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Citation

Edenhofer, O., Franks, R. M., Gruner, F., Kalkuhl, M., Lessmann, K. (2024): The Economics of Carbon Dioxide Removal: A Governance Perspective, (CESifo Working Papers ; 11516), München : Munich Society for the Promotion of Economic Research - CESifo, 38 p.


Cite as: https://publications.pik-potsdam.de/pubman/item/item_31344
Abstract
Carbon dioxide removal (CDR) is becoming an emerging topic in climate policy. We review the nascent economic literature on the governance of CDR and discuss policy design and institutions. We first assess the role of CDR in climate policy portfolios that include abatement and adaptation. Cost saving technological progress could make CDR a game changer in climate policy: CDR creates new sectoral, intertemporal and international flexibilities, which reduce overall costs and allow returning to a temperature target after temporary overshooting. Moreover, carbon removal can reduce the problem of international cooperation due to substantially lower supply-side leakage via fossil fuel markets. A key challenge lies in its governance and incentive structure that is complicated by non-permanence of carbon storage and default risks of the firms committed to future CDR. For CDR governance, we survey approaches that incentivize removals by price instruments or include CDR in (modified) emissions trading schemes.